Whether you're holding cash to meet a sudden emergency or to do some timely investing, you want to get a nice return wherever you park it.

Many investors prefer to put their excess cash in their local bank or credit union account. But if you're willing to take a little risk, take a look at a niche category of mutual funds known as bank loan mutual funds.

"They've been around for quite a while, but they don't get a lot of attention," says financial adviser Tony Proctor. "One reason is that there just aren't many around."

The few mutual fund companies that offer them buy short-term loans that banks have made to corporations, says Proctor, who has owned his own financial services business outside Boston for 11 years. In many cases, the loans are no longer than six months and are secured by assets.

While the funds are very specialized, Proctor said, he likes to use them because they offer attractive current yields with relatively low risk, he says.

One example: Fidelity's Floating Rate High Income Fund (ticker FFRHX). The fund has a current yield of 4.9 percent, a significant premium to money market funds and not that much less than a lot of junk bond funds offer, says Jack Bowers, who publishes the investment newsletter Fidelity Monitor. He includes the floating rate fund in his model portfolio designed for income investors.

"Funds like this are perfect to hold when interest rates are rising because when the government raises rates, the banks pass along the higher rates to their borrowers," Bowers says.

Bower describes this fund niche as a lot like junk bond funds without nearly as much risk. Junk bond funds have loans that extend five to 10 years, he said. But since the bank loan funds have short terms, that leaves less time for something to go wrong. Plus, they have corporate assets that secure them.

Also, these bank funds rise in value because the banks are able to increase their loan rates, unlike traditional corporate bond funds that go down in value when interest rates are rising.

Because "the maturities on these types of loans are short term, bank loan funds are often used in a rising interest environment to help diversify the fixed-income portion of a portfolio by reducing the interest rate risk," says Roseville investment adviser Jerod Wurm.

He suggests allocating as much as 5 to 10 percent of one's overall portfolio or 20 percent of fixed-income investments to a bank loan fund or senior floating rate fund.

Proctor, who has been putting investor money into bank loan funds for 10 years, cautions investors: "Make no mistake about it, these companies are not the Microsofts of the world.

"They're typically smaller companies, and some may have issues with their cash flow," he warns. "But there is an incredibly low default rate."

He calls it a niche product that is appropriate for some income-oriented investors. One of the funds that he uses is Eaton Vance Floating Rate and High Income Fund (EAFHX), which offers a current yield of about 4.4 percent.

"This fund is a good choice for income-oriented investors who are looking to park money for one to two years," Proctor says.

Wurm points out that the bank loan funds can be at risk "if the market were to stall or we enter a recessionary period and the default rate could go up. In that case, the corporation that borrowed the money may be more likely to default, causing the value of the fund to go down."

A final caveat on bank loan funds: There are only about a dozen of them in the market and some have restrictions on liquidity.

"Some only allow you to sell once a quarter, so you don't want to invest your money there," Proctor says.